Sika AG (VTX:SIKA) will increase its dividend from last year’s comparable payment on the 3rd of April to CHF3.30. Even though the dividend went up, the yield is still quite low at only 1.3%.
View our latest analysis for Sika
Sika’s Earnings Easily Cover The Distributions
The dividend yield is a little bit low, but sustainability of the payments is also an important part of evaluating an income stock. Prior to this announcement, Sika’s dividend was comfortably covered by both cash flow and earnings. This indicates that quite a large proportion of earnings is being invested back into the business.
Looking forward, earnings per share is forecast to rise by 47.7% over the next year. If the dividend continues on this path, the payout ratio could be 38% by next year, which we think can be pretty sustainable going forward.
Sika Doesn’t Have A Long Payment History
Even though the company has been paying a consistent dividend for a while, we would like to see a few more years before we feel comfortable relying on it. Since 2019, the annual payment back then was CHF2.05, compared to the most recent full-year payment of CHF3.30. This works out to be a compound annual growth rate (CAGR) of approximately 10.0% a year over that time. Sika has been growing its dividend at a decent rate, and the payments have been stable. However, the payment history is very short, so there is no evidence yet that the dividend can be sustained over a full economic cycle.
We Could See Sika’s Dividend Growing
Some investors will be chomping at the bit to buy some of the company’s stock based on its dividend history. We are encouraged to see that Sika has grown earnings per share at 7.1% per year over the past five years. Since earnings per share is growing at an acceptable rate, and the payout policy is balanced, we think the company is positioning itself well to grow earnings and dividends in the future.
Our Thoughts On Sika’s Dividend
Overall, this is a reasonable dividend, and it being raised is an added bonus. While the payout ratios are a good sign, we are less enthusiastic about the company’s dividend record. The dividend looks okay, but there have been some issues in the past, so we would be a little bit cautious.
Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. For example, we’ve picked out 2 warning signs for Sika that investors should know about before committing capital to this stock. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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